FIRM Act
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The FIRM Act would ban federal banking regulators from using 'reputational risk' — the potential for negative publicity — as a factor when supervising, examining, or taking enforcement action against banks, credit unions, and other depository institutions. It would also require agencies to tailor regulations to each institution's actual risk profile and simplify reporting requirements for community banks.
Supporters argue that the reputational-risk standard has been used to pressure banks to cut off service to legally operating but politically disfavored industries; removing it would mark a significant shift in how the five major federal banking regulators exercise their supervisory authority.
What this bill would do
What it would do
The bill would prohibit all federal banking agencies — the Office of the Comptroller of the Currency, the Federal Reserve, the FDIC, the National Credit Union Administration, and the Bureau of Consumer Financial Protection — from using "reputational risk" in any aspect of bank supervision. Agencies would be required to remove existing reputational-risk language from guidance documents, examination manuals, and rules. The prohibition would cover examination findings, supervisory ratings, enforcement actions, rulemaking, and data collection. Separately, the bill would require agencies to tailor future regulations to each institution's risk profile and business model, document that tailoring in every rulemaking notice, and conduct a look-back review of regulations issued in the prior seven years.
The bill would also direct agencies to establish reduced quarterly call-report forms for community banks eligible for the Community Bank Leverage Ratio, require a joint report on modernizing bank supervision within 18 months, and mandate implementation-confirmation reports to Congress within 180 days of enactment. It would not affect a bank's own internal risk-management practices — only what federal regulators can consider.
Key provisions
- 1Would require each federal banking agency to remove all references to reputational risk from guidance, rules, and examination manuals so that it is no longer a supervisory consideration.
- 2Would prohibit agencies from using reputational risk in any supervisory activity, including rulemaking, examinations, ratings decisions, enforcement actions, and data collection.
- 3Would require agencies to tailor regulations to each institution's risk profile and business model, disclose that tailoring in every rulemaking, and apply the standard retroactively to regulations from the prior seven years within three years of enactment.
- 4Would direct appropriate federal banking agencies to establish reduced call-report requirements for all banks eligible for the Community Bank Leverage Ratio for the first and third quarterly reports each year.
- 5Would require federal banking agencies, in consultation with state bank supervisors, to submit a report within 18 months on modernizing bank supervision, including examiner training, technology, and community bank issues.
- 6Would require each federal banking agency to report to Congress within 180 days confirming implementation of the Act and describing internal policy changes made as a result.
Who would be affected
All federally supervised depository institutions and insured credit unions — from large national banks to small community banks and credit unions — would no longer be subject to reputational-risk examinations or enforcement. Community banks eligible for the Community Bank Leverage Ratio would gain reduced call-report obligations. The five federal banking agencies would face new constraints on how they write and apply rules, and would be required to submit regular reports to Congress.
Why it matters
Banks and credit unions would be shielded from supervisory pressure, criticism, or enforcement based on the industries or customers they serve — a standard critics contend has been used to push banks away from firearms dealers, payday lenders, and other legal but politically disfavored businesses. For community banks, the simplified reporting requirement would reduce the quarterly compliance burden of filing full call reports twice a year.
What would change
Agencies directed to act
Effective dates
- Each agency's implementation-confirmation report due to Congress
- First annual report on regulatory tailoring actions due to Congress
- Report on modernization of bank supervision due to Congress
- Deadline for agencies to complete revisions of look-back regulations under the tailoring standard
Funding and costs
Congressional Budget Office estimate
CBO estimates the FIRM Act would increase the federal deficit by $30 million over the 2026–2035 period, driven by higher administrative costs for federal financial regulators.
CBO estimates that S. 875, the FIRM Act, would increase net direct spending (mandatory outlays) by $15 million and decrease revenues by $15 million over the 2026–2035 period, for a combined net increase in the deficit of $30 million. The main cost driver is additional administrative expenses for financial regulators — including the FDIC, NCUA, OCC, and Federal Reserve — associated with rulemaking, report publication, examiner training, and ongoing tailoring of regulations; the CFPB's costs are not counted because it is expected to remain at its statutory spending cap. The bill contains no intergovernmental mandates; it does contain a private-sector mandate (higher regulatory fees passed to regulated entities), but CBO estimates its cost would fall well below the UMRA annual threshold of $206 million.
How implementation would work
Upon enactment, each agency would need to purge reputational-risk language from all existing guidance, examination manuals, and rules. For future rulemakings, agencies would be required to document in every notice of proposed and final rulemaking how they tailored regulatory burdens to each institution type's risk profile; the same tailoring standard would be applied retroactively to regulations issued in the seven years before enactment, with revisions completed within three years. Community bank call-report relief would be implemented through agency rulemaking. Each agency would file a 180-day implementation-confirmation report to the Senate Banking and House Financial Services Committees, and annual tailoring reports thereafter.
Legislative status & sources
Latest action
Placed on Senate Legislative Calendar under General Orders. Calendar No. 32.
Official CRS summary
Show the CRS summaryHide the CRS summary
This bill prohibits the consideration of reputational risk by federal banking agencies when regulating, examining, or supervising a depository institution or credit union. The bill defines reputational risk as the potential for negative publicity or public attention to decrease confidence in the institution, lead to litigation, reduce revenues, or result in other adverse impacts to the institution.
Agencies must report on the implementation of this bill.
Legislative subjects
Banking and financial institutions regulation; Congressional oversight; Finance and Financial Sector; Financial services and investments; Government information and archives; Government studies and investigations